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Keynote address : an economist's view of pollution

page 898

KEYNOTE ADDRESS-AN ECONOMIST'S VIEW OF POLLUTION
John W. Hicks III, Executive Assistant
Office of the President
Purdue University
West Lafayette, Indiana 47907
As I'm sure you are aware, the original speaker for this spot on the program had to cancel
out, and Jim Etzel was forced to go to the bench for a pinch-hitter. His first choice was Earl
Butz, but as you might expect, Earl had other commitments. Jimmy did not want to leave
the Rose Garden, and Rosalyn was busy in Illinois with ERA. Jim even tried to get one of
the joint chiefs of staff out here, but their helicopter broke down. So here I am and I don't
know the first thing about industrial waste. But a minor factor like that has never prevented
an economist from discoursing on any subject in the world.
Yet economists do sometimes have a useful way of looking at things. It is sometimes
helpful to stand back a bit and try to view a problem in a somewhat different perspective.
It is so easy to get lost in the detads, that we may forget where we really want to go, or
at least become confused as to how to get there.
What I plan to do then is to take a brief look at the problem of pollution in our modern
society, as an economist might approach it, and talk briefly about some of the basic considerations we might keep in mind as we develop and implement public policy.
ECONOMIC PRINCIPLES
Fortunately, I do not have to convince you that industrial waste is a major problem of
our modern industrial world, or that our public policy efforts to solve this problem have been
less than perfect.
Let me begin with a few very simple economic facts of life which I'm sure you all know,
but which we sometimes forget at least temporarily:
1. Everything has a cost! But, beyond that, in the last analysis, all costs are paid by people—individual human beings.
2. In nearly all cases, overcoming pollution-that is removing the pollutant-is an "increasing
cost" industry.
3. Human beings being as they are, economic incentives are very strong incentives.
4. The only way for some to have more, without others having less, is to increase productivity.
These are four vital economic priniciples which should never be forgotten in developing
public policy regarding industrial waste.
There is another important point on which I find a great deal of confusion—an oversimplification concerning public policy to the effect that the alternatives are the "free
market" versus regulation: That these are polar alternatives, which are mutually exclusive.
This misconception leads to much fuzzy thinking, and much emotion. It simply isn't true.
It is often stated that if we would only return to the unregulated competitive market
we would solve most of our problems. The shortcoming of this agrument is that there is
no such thing, and can be no such thing as an unregulated competitive market. It takes
a substantial set of laws, rules or regulations to have a competitive market which wdl work
at all. This is clear when one raises and tries to answer the question: what does an unregulated
competitive market mean?
898

KEYNOTE ADDRESS-AN ECONOMIST'S VIEW OF POLLUTION
John W. Hicks III, Executive Assistant
Office of the President
Purdue University
West Lafayette, Indiana 47907
As I'm sure you are aware, the original speaker for this spot on the program had to cancel
out, and Jim Etzel was forced to go to the bench for a pinch-hitter. His first choice was Earl
Butz, but as you might expect, Earl had other commitments. Jimmy did not want to leave
the Rose Garden, and Rosalyn was busy in Illinois with ERA. Jim even tried to get one of
the joint chiefs of staff out here, but their helicopter broke down. So here I am and I don't
know the first thing about industrial waste. But a minor factor like that has never prevented
an economist from discoursing on any subject in the world.
Yet economists do sometimes have a useful way of looking at things. It is sometimes
helpful to stand back a bit and try to view a problem in a somewhat different perspective.
It is so easy to get lost in the detads, that we may forget where we really want to go, or
at least become confused as to how to get there.
What I plan to do then is to take a brief look at the problem of pollution in our modern
society, as an economist might approach it, and talk briefly about some of the basic considerations we might keep in mind as we develop and implement public policy.
ECONOMIC PRINCIPLES
Fortunately, I do not have to convince you that industrial waste is a major problem of
our modern industrial world, or that our public policy efforts to solve this problem have been
less than perfect.
Let me begin with a few very simple economic facts of life which I'm sure you all know,
but which we sometimes forget at least temporarily:
1. Everything has a cost! But, beyond that, in the last analysis, all costs are paid by people—individual human beings.
2. In nearly all cases, overcoming pollution-that is removing the pollutant-is an "increasing
cost" industry.
3. Human beings being as they are, economic incentives are very strong incentives.
4. The only way for some to have more, without others having less, is to increase productivity.
These are four vital economic priniciples which should never be forgotten in developing
public policy regarding industrial waste.
There is another important point on which I find a great deal of confusion—an oversimplification concerning public policy to the effect that the alternatives are the "free
market" versus regulation: That these are polar alternatives, which are mutually exclusive.
This misconception leads to much fuzzy thinking, and much emotion. It simply isn't true.
It is often stated that if we would only return to the unregulated competitive market
we would solve most of our problems. The shortcoming of this agrument is that there is
no such thing, and can be no such thing as an unregulated competitive market. It takes
a substantial set of laws, rules or regulations to have a competitive market which wdl work
at all. This is clear when one raises and tries to answer the question: what does an unregulated
competitive market mean?
898